DALLAS, TEXAS . . November 9,
2017. Valhi, Inc. (NYSE: VHI) reported net income
attributable to Valhi stockholders of $45.9 million, or $.13 per
diluted share, in the third quarter of 2017 compared to $3.0
million, or $.01 per diluted share, in the third quarter of
2016. Valhi reported net income attributable to Valhi
stockholders of $67.4 million, or $.20 per diluted share, in the
first nine months of 2017 compared to a net loss attributable to
Valhi stockholders of $25.0 million, or $.07 per diluted share in
the first nine months of 2016. We reported net income
attributable to Valhi stockholders in the 2017 periods primarily
due to the improved operating results of our Chemicals Segment and
the second quarter recognition of a non-cash deferred income
tax benefit related to the Chemicals Segment's German and Belgian
operations partially offset by a long-lived asset impairment charge
related to our Waste Management Segment.
The Chemicals Segment's net sales
of $464.5 million in the third quarter of 2017 were $108.4 million,
or 30%, higher than in the third quarter of 2016. The
Chemicals Segment's net sales of $1.276 billion in the first nine
months of 2017 were $245.1 million, or 24%, higher than in the
first nine months of 2016. The Chemicals Segment's net sales
increased in 2017 due to higher average TiO2 selling
prices and higher sales volumes. The Chemicals Segment's
average TiO2 selling
prices were 23% higher in the third quarter of 2017 as compared to
the third quarter of 2016 and were 20% higher in the first nine
months of the year as compared to the same prior year period.
The Chemicals Segment's average selling prices at the end of the
third quarter of 2017 were 8% higher than at the end of the second
quarter of 2017 and were 21% higher than at the end of 2016, with
higher prices in all major markets. TiO2 sales
volumes in each of the third quarter and year-to-date period of
2017 were 5% higher as compared to the same periods in 2016 due to
higher sales in the European, North American and export markets.
The Chemicals Segment's sales volumes in the third quarter and
first nine months of 2017 set a new overall record for a third
quarter and first-nine-month period. Fluctuations in currency
exchange rates (primarily the euro) also affected net sales
comparisons, increasing net sales by approximately $13 million in
the third quarter of 2017 and decreasing net sales by approximately
$2 million in the first nine months of 2017 as compared to the same
periods in 2016. The table at the end of this press release
shows how each of these items impacted the overall increase in
sales.
The Chemicals Segment's operating
income in the third quarter of 2017 was $93.9 million as compared
to $30.1 million in the third quarter of 2016. For the
year-to-date period, the Chemicals Segment's operating income was
$221.9 million as compared to $45.8 million in the first nine
months of 2016. The Chemicals Segment's operating income
increased in the third quarter of 2017 primarily due to higher
average TiO2 selling
prices and higher sales and production volumes partially offset by
higher costs for certain raw materials and other production
costs. The Chemicals Segment's operating income increased in
the first nine months of 2017 primarily due to higher average
TiO2 selling
prices, higher sales and production volumes and lower raw materials
and other production costs. The Chemicals Segment's
TiO2 production
volumes were 2% higher in the third quarter and 7% higher in the
first nine months of 2017 as compared to the same periods in
2016. The Chemicals Segment operated its production
facilities at full practical capacity utilization rates in the
first nine months of 2017 compared to approximately 97% in the
first nine months of 2016. The Chemicals Segment's production
volumes in the third quarter and first nine months of 2017 set a
new overall record for a third quarter and first-nine-month
period. Fluctuations in currency exchange rates also affected
operating income comparisons, which decreased operating income by
approximately $6 million in the third quarter and by approximately
$19 million in the year-to-date period.
The Component Products
Segment's net sales decreased 5% in the third quarter of 2017
compared to the same period of 2016 but increased 5% in the first
nine months of 2017 compared to same period of 2016.
The Component Products Segment's net sales decreased in the third
quarter of 2017 relative to the same period in 2016 primarily as a
result of security products sales in the third quarter of 2016 to a
single government customer that, as expected, did not recur in the
third quarter of 2017. The Component Products Segment's net sales
increased in the first nine months of 2017 compared to the
respective period of 2016 primarily due to higher security products
sales volumes to existing government customers predominately during
the first half of 2017, partially offset by a decrease in sales of
security products to an original equipment manufacturer of
recreational transportation products. The Component Products
Segment's operating income decreased from $4.4 million in the third
quarter of 2016 to $3.4 million in the third quarter of 2017,
primarily due to the lower security products net sales as well as
unfavorable relative changes in customer and product mix in the
security products reporting unit and higher manufacturing costs at
the marine components reporting unit. The Component Products
Segment's operating income increased from $11.5 million in the
first nine months of 2016 to $12.5 million in the first nine months
of 2017 principally due to higher security products net sales.
The Waste Management Segment's net
sales increased $4.8 million and $30.5 million in the third quarter
and first nine months of 2017, respectively, compared to the same
periods of 2016. The increase in net sales was led by an
increase in disposal volumes. In both the third quarter and first
nine months of 2017 there was an increase in the lower margin low
activity waste disposal related to two projects (which are expected
to continue for another three to six months). In the first
quarter of 2017 we completed a back-log disposal campaign for a
waste consolidator that contributed $4.0 million to revenue for the
first nine months of 2017 (which is not expected to recur).
Also contributing to the increase in sales in 2017 was an increase
in transportation related revenue as we seek to increase our
logistical capabilities to better manage customer disposal
shipments; however, increases in transportation revenue also add to
our cost of sales as we generally pass through actual logistics
costs plus a service fee to our customers. As a result,
increases in transportation revenue of $4.9 million and $14.8
million in the third quarter and first nine months of 2017,
respectively, compared to the same periods in 2016 are offset by
increases in cost of sales over the same periods. Higher
disposal volumes in the third quarter and first nine months of 2017
resulted in higher coverage of fixed costs as compared to the same
periods of 2016. As a result, our Waste Management Segment's
operating income before the long-lived asset impairment improved in
both periods to $4.0 million in the third quarter of 2017 compared
to an operating loss of $5.1 million in the same period of 2016 and
operating income of $3.6 million in the first nine months of 2017
compared to a loss of $23.0 million in the same period of
2016. Following the previously-reported June 2017 termination
of the agreement to sell our Waste Management Segment, the Company
concluded the long-lived assets associated with the Waste
Management Segment were impaired. Accordingly, the Company
recognized an aggregate $170.6 million pre-tax impairment charge as
of June 30, 2017 ($105.5 million, or $.31 per diluted share, net of
income tax benefit), to reduce the carrying value of the Waste
Management Segment's long-lived assets recognized for financial
reporting purposes to their estimated fair value.
The Real Estate Management and
Development Segment had third quarter 2017 sales of $5.1 million,
including $2.6 million in revenue on sales of land held for
development, compared to sales of $8.7 million in the third quarter
of 2016, including $6.6 million in sales of land held for
development. For the first nine months of 2017 the Real
Estate Management and Development Segment had sales of $21.0
million, including $14.5 million in revenue on sales of land held
for development, compared to sales of $15.8 million in the first
nine months of 2016, including $9.8 million in sales of land held
for development. The Real Estate Management and Development
Segment had operating income in the third quarter of 2017 of $1.3
million, an increase of $1.0 million compared to operating income
of $.3 million in the 2016 period, as the lower level of sales in
the third quarter of 2017 was more than offset by a more favorable
mix of relatively higher margin land sales in 2017. The Real
Estate Management and Development Segment had operating income of
$3.1 million in the first nine months of 2017 compared to an
operating loss of $5.1 million in the same period of 2016.
Included in the year-to-date 2016 operating loss is a contract
related intangible asset impairment charge of $5.1 million ($.01
per diluted share) resulting from an amendment to a water delivery
contract entered into in January 2016. Because the land held
for development acquired was initially recognized at the estimated
fair value at December 31, 2013 in connection with the
previously-reported acquisition of a controlling interest in this
segment, the Company does not expect to recognize significant
operating income on land sales during 2017.
Corporate expenses were 17% lower in
the third quarter of 2017 compared to the third quarter of 2016,
primarily due to lower environmental remediation and related
expenses in 2017. Corporate expenses were 19% higher in the
first nine months of 2017 compared to the same period of 2016,
primarily due to transaction costs related to the now terminated
agreement to sell our Waste Management Segment which were primarily
incurred during the first half of 2017, partially offset by lower
environmental remediation and related expenses in 2017.The Company
received a $4.0 million fee in the second quarter of 2017 related
to the termination of the agreement to sell our Waste Management
Segment, which is recognized as part of other non-operating income
in the year-to-date period.
In September 2017, the Chemicals
Segment voluntarily prepaid and terminated its term loan
indebtedness using a portion of the proceeds from the September
2017 issuance by Kronos International, Inc., its wholly-owned
subsidiary, of €400 million principal amount of 3.75% Senior
Secured Notes due September 2025. The Company's results in
the third quarter of 2017 include a pre-tax charge of $7.1 million
($.01 per diluted share) related to such prepayment.
The Company's income tax benefit
in the first nine months of 2017 includes a non-cash deferred
income tax benefit of $170.4 million ($.29 per diluted share) as a
result of a net decrease in our deferred income tax asset valuation
allowance related to our Chemicals Segment's German and Belgian
operations ($7.8 million, or $.01 per diluted share, recognized in
the third quarter). The Company's income tax expense in the
third quarter of 2017 includes an $11.3 million ($.02 per diluted
share) aggregate income tax benefit related to the execution and
finalization of an Advance Pricing Agreement between the Canada and
Germany associated with our Chemicals Segment.
The Company's income tax expense
in the first nine months of 2016 includes a non-cash deferred
income tax expense of $2.1 million ($.01 per share) as a result of
a net increase in our deferred income tax asset valuation allowance
related to our German and Belgian operations. The Company's income
tax expense in the third quarter of 2016 includes a $5.6 million
($.01 per diluted share) current income tax benefit related to the
execution and finalization of an Advance Pricing Agreement between
the U.S. and Canada associated with our Chemicals
Segment.
The statements in this press release relating to
matters that are not historical facts are forward-looking
statements that represent management's beliefs and assumptions
based on currently available information. Although the
Company believes the expectations reflected in such forward-looking
statements are reasonable, it cannot give any assurances that these
expectations will be correct. Such statements by their nature
involve substantial risks and uncertainties that could
significantly impact expected results, and actual future results
could differ materially from those predicted. While it is not
possible to identify all factors, the Company continues to face
many risks and uncertainties. Among the factors that could
cause our actual future results to differ materially include, but
are not limited to, the following:
-
Future supply and demand for our products;
-
The extent of the dependence of certain of our
businesses on certain market sectors;
-
The cyclicality of certain of our businesses
(such as Kronos' TiO2
operations);
-
Customer and producer inventory levels;
-
Unexpected or earlier-than-expected industry
capacity expansion (such as the TiO2
industry);
-
Changes in raw material and other operating
costs (such as energy, ore, zinc and brass costs) and our ability
to pass those costs on to our customers or offset them with
reductions in other operating costs;
-
Changes in the availability of raw materials
(such as ore);
-
General global economic and political conditions
(such as changes in the level of gross domestic product in various
regions of the world and the impact of such changes on demand for,
among other things, TiO2 and component
products);
-
Competitive products and prices and substitute
products, including increased competition from low-cost
manufacturing sources (such as China);
-
Possible disruption of our business or increases
in the cost of doing business resulting from terrorist activities
or global conflicts;
-
Customer and competitor strategies;
-
Potential difficulties in integrating future
acquisitions;
-
Potential difficulties in upgrading or
implementing new accounting and manufacturing software
systems;
-
Potential consolidation of our
competitors;
-
Potential consolidation of our customers;
-
The impact of pricing and production
decisions;
-
Competitive technology positions;
-
The introduction of trade barriers;
-
The ability of our subsidiaries to pay us
dividends;
-
The impact of current or future government
regulations (including employee healthcare benefit related
regulations);
-
Uncertainties associated with new product
development and the development of new product features;
-
Fluctuations in currency exchange rates (such as
changes in the exchange rate between the U.S. dollar and each of
the euro, the Norwegian krone and the Canadian dollar) or possible
disruptions to our business resulting from potential instability
resulting from uncertainties associated with the euro or other
currencies;
-
Operating interruptions (including, but not
limited to, labor disputes, leaks, natural disasters, fires,
explosions, unscheduled or unplanned downtime, transportation
interruptions and cyber attacks);
-
Decisions to sell operating assets other than in
the ordinary course of business;
-
The timing and amounts of insurance
recoveries;
-
Our ability to renew, amend, refinance or
establish credit facilities;
-
Our ability to maintain sufficient
liquidity;
-
The ultimate outcome of income tax audits, tax
settlement initiatives or other tax matters;
-
Our ultimate ability to utilize income tax
attributes, the benefits of which may or may not presently have
been recognized under the more-likely-than-not recognition
criteria;
-
Environmental matters (such as those requiring
compliance with emission and discharge standards for existing and
new facilities, or new developments regarding environmental
remediation at sites related to our former operations);
-
Government laws and regulations and possible
changes therein (such as changes in government regulations which
might impose various obligations on former manufacturers of lead
pigment and lead-based paint, including NL, with respect to
asserted health concerns associated with the use of such
products);
-
The ultimate resolution of pending litigation
(such as NL's lead pigment litigation, environmental and other
litigation and Kronos' class action litigation);
-
Our ability to comply with covenants contained
in our revolving bank credit facilities;
-
Our ability to complete and comply with the
conditions of our licenses and permits;
-
Our ability to successfully defend against any
possible future challenge to WCS' operating licenses and
permits;
-
Unexpected delays in the operational start-up of
shipping containers procured by WCS;
-
Our ability to increase disposal volumes and
obtain new business at WCS;
-
Our ability to generate positive operating
results or cash flows at WCS;
-
The impact of our inability to complete the
previously-reported sale of WCS;
-
Changes in real estate values and construction
costs in Henderson, Nevada;
-
Water levels in Lake Mead; and
-
Possible future litigation.
Should one or more of these risks materialize (or the consequences
of such development worsen), or should the underlying assumptions
prove incorrect, actual results could differ materially from those
currently forecasted or expected. We disclaim any intention
or obligation to update or revise any forward-looking statement
whether as a result of changes in information, future events or
otherwise.
In an effort to provide investors
with additional information regarding the Company's results of
operations as determined by accounting principles generally
accepted in the United States of America ("GAAP"), the Company has
disclosed certain non-GAAP information, which the Company believes
provides useful information to investors:
-
The Company discloses operating income (loss)
before the long-lived asset impairment charge related to our Waste
Management Segment, which is used by the Company's management to
assess the performance of the Company's Waste Management Segment's
operations. The Company believes disclosure of operating
income (loss) before the impact of the long-lived asset impairment
charge provides useful information to investors because it allows
investors to analyze the performance of the Company's Waste
Management Segment's operations in the same way that the Company's
management assesses performance.
Valhi, Inc. is engaged in the
titanium dioxide pigments, component products (security products
and high performance marine components), waste management, and real
estate management and development industries.
* * * * *
VALHI, INC. AND
SUBSIDIARIES |
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
|
|
(In millions,
except earnings per share) |
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
September 30, |
|
September 30, |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
(unaudited) |
|
(unaudited) |
Net sales |
|
|
|
|
|
|
|
Chemicals |
$ 356.1 |
|
$
464.5 |
|
$1,030.6 |
|
$1,275.7 |
Component products |
28.4 |
|
26.9 |
|
82.6 |
|
86.9 |
Waste management |
13.6 |
|
18.4 |
|
29.9 |
|
60.4 |
Real estate management and
development |
8.7 |
|
5.1 |
|
15.8 |
|
21.0 |
|
|
|
|
|
|
|
|
Total net
sales |
$ 406.8 |
|
$
514.9 |
|
$1,158.9 |
|
$1,444.0 |
|
|
|
|
|
|
|
|
Operating income
(loss) |
|
|
|
|
|
|
|
Waste management: |
|
|
|
|
|
|
|
Before long-lived asset impairment
charge |
$ (5.1) |
|
$
4.0 |
|
$ (23.0) |
|
$
3.6 |
Long-lived asset impairment charge |
- |
|
- |
|
- |
|
(170.6) |
Total Waste Management |
(5.1) |
|
4.0 |
|
(23.0) |
|
(167.0) |
Chemicals |
30.1 |
|
93.9 |
|
45.8 |
|
221.9 |
Component products |
4.4 |
|
3.4 |
|
11.5 |
|
12.5 |
Real estate management and
development |
0.3 |
|
1.3 |
|
(5.1) |
|
3.1 |
|
|
|
|
|
|
|
|
Total operating
income |
29.7 |
|
102.6 |
|
29.2 |
|
70.5 |
|
|
|
|
|
|
|
|
General corporate items: |
|
|
|
|
|
|
|
Securities earnings |
6.8 |
|
7.5 |
|
20.5 |
|
21.7 |
Insurance recoveries |
0.1 |
|
0.1 |
|
.4 |
|
.2 |
Termination fee |
- |
|
- |
|
- |
|
4.0 |
General expenses, net |
(9.1) |
|
(7.7) |
|
(29.2) |
|
(34.8) |
Loss on prepayment of debt |
- |
|
(7.1) |
|
- |
|
(7.1) |
Interest expense |
(15.9) |
|
(16.3) |
|
(47.4) |
|
(47.9) |
|
|
|
|
|
|
|
|
Income (loss)
beforeincome taxes |
11.6 |
|
79.1 |
|
(26.5) |
|
6.6 |
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
2.6 |
|
15.2 |
|
(5.8) |
|
(134.2) |
|
|
|
|
|
|
|
|
Net income
(loss) |
9.0 |
|
63.9 |
|
(20.7) |
|
140.8 |
|
|
|
|
|
|
|
|
Noncontrolling interest in net income of
subsidiaries |
6.0 |
|
18.0 |
|
4.3 |
|
73.4 |
|
|
|
|
|
|
|
|
Net income (loss)
attributable to Valhi stockholders |
$ 3.0 |
|
$
45.9 |
|
$ (25.0) |
|
$
67.4 |
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per
share: |
|
|
|
|
|
|
|
Net income (loss) per share attributable
to Valhi |
|
|
|
|
|
|
|
stockholders |
$ .01 |
|
$
.13 |
|
$ (.07) |
|
$
.20 |
|
|
|
|
|
|
|
|
Basic and diluted weighted average
shares |
|
|
|
|
|
|
|
outstanding |
342.0 |
|
342.0 |
|
342.0 |
|
342.0 |
|
|
|
|
|
|
|
|
VALHI, INC. AND
SUBSIDIARIES |
|
|
|
|
IMPACT OF
PERCENTAGE CHANGE IN CHEMICAL SEGMENT'S NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
September 30, |
|
September 30, |
|
2017 vs. 2016 |
|
2017 vs. 2016 |
|
(unaudited) |
|
(unaudited) |
|
|
|
|
|
Percentage change in TiO2 sales : |
|
|
|
|
|
|
|
TiO2 product
pricing |
|
23 |
% |
|
|
20 |
% |
TiO2 sales
volumes |
|
5 |
|
|
|
5 |
|
TiO2 product
mix |
|
(2) |
|
|
|
(1) |
|
Changes in currency exchange rates |
|
4 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Total |
|
30 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
SOURCE: Valhi, Inc.
CONTACT: Janet G. Keckeisen, Vice President, Corporate
Strategy and Investor Relations